JP Morgan's US Pension Team Quits for Boutique

(June 10, 2014) — Five members of the team running a $14 billion defined benefit pension fund for JP Morgan in the US have quit to join a boutique investment house.

Richard Sabo, formerly the CIO of the banking giant’s pension, has joined Spruceview Capital Partners as CEO, according to the firm’s website.

Sabo joined the boutique with four of his former colleagues from JP Morgan: Courtney Donnelly, Bryan Frackman, Renee Kelly, and Neetesh Kumar. They are now partners at Spruceview.

Spruceview has also appointed former deputy CIO for public markets and director of strategic initiatives for the Massachusetts Pension Reserve Investment Management (PRIM) Board, the website states.

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Hannah Commoss, partner at the firm, left the PRIM board in October last year.

In addition, David Russ, former chief investment strategist at Credit Suisse Asset Management, has joined the firm as its CIO. Russ previously served as CIO of Dartmouth College and treasurer of the Regents of the University of California.

The firm claims to be made up of “seasoned investors who place a strong emphasis on risk management.”

“Our philosophy is to be a partner with our investors and to align our interests with theirs,” the website states. “We provide fully customized multi-asset investment solutions that are designed to meet each investor’s specific objectives.”

The Wall Street Journal reported that one of the motives behind the move was the de-risking strategy being implemented by the bank on the pension fund that shifted assets away from alternatives. The four new Spruceview partners to join from the bank oversaw a range of assets outside traditional public market stocks and bonds.

Ameeta Gosain has replaced Sabo as CIO, a source close to the pension fund confirmed.

JP Morgan declined to comment on personnel moves.

(June 10, 2014) — All five New York City public pension plans have passed a resolution barring placement agents from participating in any of the system’s investment transactions.

The rule became effective immediately, according to City Comptroller Scott Stringer. Less than a month after taking office on January 1, he announced his plan to outlaw these intermediaries as the first of a six-point ethics reform package for the $150 billion pension system.

Following a three-year investigation, New York’s state attorney general concluded in 2010 that "the use of placement agents to obtain public pension fund investments is a practice fraught with peril and prone to manipulation and abuse.”

After examining the state’s allocation practices, then-Attorney General Steven Cohen acknowledged "the problems with 'pay-to-play’ practices and conflicts of interest inherent in the use of placement agents.” Several other state attorneys general and the US Securities and Exchange Commission reached similar conclusions following their own investigations.

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Cohen’s report—released a month after New York City’s former CIO pleaded guilty to felony fraud charges—called for a comprehensive placement agent ban across all funds and asset classes.

Four years later, with Stringer’s urging, the five retirement systems have ratified Cohen’s proposal.

“The passage of an ironclad ban on placement agents for all transactions involving the New York City pension funds was long overdue,” Stringer said. “Ending the involvement of intermediaries in pension funds’ transactions will ensure that the integrity and independence of our investment decisions are beyond reproach and without conflict."

Kick-back schemes conducted through placement agents—and the ensuing backlash—have unfairly maligned a once-sterling profession, according to a founder of an early intermediary firm.

In a February letter to aiCIO’s editors, Klitzberg Associates founder Richard Klitzberg argued that most in the industry are “well-trained, well-intentioned, well-informed professionals who are valuable intermediaries between buyers of investment products and money managers.” However, “the plan sponsor-turned-agent” phenomena led to the allocation of public assets based on political ties and contributions rather than prudent manager selection, according to Klitzberg.

Stringer, in his announcement of the ban, conveyed no misgivings about hastening the industry’s demise. “I want to thank my fellow trustees for supporting this measure and I look forward to working with them as we continually improve the way the New York City pension funds do business.”